South Korea’s Capital Flow Control Enabling Kimchi Premium, Says BoA

With the Kimchi premium back in the South Korean market, the Bank of America (BoA) believes that the persistent premium is as a result of the government’s capital flow control policy.

Kimchi Premium Persists Because of Capital Flow Control 

According to Reuters on Tuesday (May 18, 2021), BTC price on Tuesday was $4000 higher than normal in South Korea. Meanwhile, a BoA report revealed that the capital flow control policy imposed by the South Korean government, has enabled the kimchi premium to persist.

South Korean authorities set the maximum purchase for foreign currencies per person at 50,000 annually. Meanwhile, the restrictions have caused individuals to turn to bitcoin and other cryptocurrency assets. 

An excerpt from the report reads:

The onshore price for cryptocurrencies in Korea is persistently above international prices suggesting this to be a result of effective capital control that prevents effective arbitrage of onshore and offshore prices.”

The Kimchi premium, which is derived from South Korean cuisine, is the difference between the price of bitcoin on South Korean crypto exchanges and other exchanges globally. As reported by BTCManager in early April, the kimchi premium drove the price of bitcoin to $71,000 on Upbit, which was 23 percent higher than other global exchanges. However, hours later, the kimchi premium dipped to nine percent.

The cryptocurrency industry has come under strict surveillance and regulations from the South Korean government. In late April, the head of the Financial Services Commission (FSC), Eun Song-soo, said that crypto exchanges in the country were supposed to register with the commission beginning March 25th.

However, at the time of the report, the FSC chair said the agency was yet to receive any applicants. Subsequently, Song-soo said that if the over 200 cryptocurrency exchanges fail to comply with the directive, they could risk being shut down in September.  

Also, the government is set to impose a 20% tax on crypto gains exceeding 2.5 million won ($2,218) from January 2022. Despite criticisms against the tax policy, a recent survey revealed that more than half of the respondents were in favor of the crypto tax law. Regulators in South Korea are also working with banks to better regulate the cryptocurrency industry. 

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South Korea to Curb Illegal Cross-Border Crypto Trading

Key Takeaways

  • According to a report from Korea Economic Daily, there has been a sudden rise in bank transactions from Korea to China.
  • Regulators suspect the transactions may be related to crypto traders looking for cross-border arbitrage opportunities.
  • South Korea’s leading financial regulator is reportedly formulating new guidelines to strengthen the monitoring of cross-border transactions connected with cryptocurrency.

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South Korea may soon curb overseas cryptocurrency transactions that take advantage of arbitrage trading opportunities.

The Kimchi Premium

According to a report from Korea Economic Daily, there has been a sudden rise in transactions between Korea and China.

The country’s leading banks found fiat transfers of $72.7 million (81.2 billion won) to China between Apr. 1 and Apr. 9. This was an eightfold increase from $9.07 million in total for the whole of March.

Korean regulators suspect that the sudden spike in transactions is linked to cryptocurrency purchases that were carried out on foreign exchanges, made with the intention of selling the same cryptocurrency on domestic exchanges at a premium.

Regulators suspect the transactions may be related to crypto traders looking to arbitrage the kimchi premium—the difference in the price of cryptocurrencies on Korean and global exchanges.

Such price differences occur during extreme optimism among Korean crypto speculators. Since the beginning of 2021, Bitcoin has been trading at a higher rate than the global average price on Korean exchanges due to a bullish market.

This premium climbed above 20% in early April, which may have driven the opportunity through overseas bank transactions.

FSS Will Take Action

South Korea’s leading financial regulator, the Financial Supervisory Service (FSS), said it was concerned about a potential increase in money laundering and fraud risks due to such overseas transactions.

Now, FSS is creating guidelines to strengthen the monitoring of cross-border transactions connected with cryptocurrency.

“Authorities will keep monitoring any signs of illegal trading activities in the cryptocurrency market here, and team up with global institutions to systematically deal with unlawful acts made through overseas exchanges,” an official told the Korea Times.

Korean regulators previously banned domestic exchanges from serving foreigners in order to prevent price differences from being exploited by investors seeking arbitrage.

However, given today’s news, that solution seems to have been insufficient.

Disclaimer: At the time of writing this author held Cosmos (ATOM).

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Kimchi Premium Puts Bitcoin Lower Ahead of Fed Minutes; What’s Next?

Bitcoin prices dropped lost 3.12 percent in early trading Monday, while the rest of the crypto market followed suit, turning lower aggressively after their record-setting bull runs at the start of this week.

Bitcoin wobbles around $56,000. Source: BTCUSD on

At first, it appeared like a regular profit-taking exercise among western day-traders against overvaluation risks. Nevertheless, blockchain analytics platform CryptoQuant noted that the sell-off appeared out of South Korea-based crypto exchange Upbit Global. It happened after a so-called “Kimchi Premium” indicator reached its three-year peak.

What is Kimichi Premium?

In retrospect, Kimchi Premium a metric which represents the difference in the bitcoin prices on South Korean exchanges and other global trading avenues. Arcnae Research analysts note that when the indicator peaks, it somewhat ends up blowing up the bitcoin bullish bubbles. The metric reached 47 percent in January 2018 and 63 percent in 2017, and followed up with vast price corrections in the global bitcoin market.

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Bitcoin Kimchi Premium plunges alongside global price. Source: CryptoQuant

Nevertheless, Kimchi Premium formed dwarfed peaks of 6.5 percent in January 2018 and 63 percent in May 2019 — also leading to major bitcoin price corrections lower. As of this week, the metric peaked around 18 percent, before dropping lower during the European session Wednesday, as shown in the chart above.

“It seems someone finally figured out how to arbitrage this Kimchi premium opportunity,” said Ki-Young Ju, the CEO of CryptoQuant. “The trading volume in 30min time frame on Upbit Global, the largest Korean exchange, was bigger than Binance‘s. This drop seems related to Kimchi pullback.

Mr. Ju also told CoinDesk that the Kimchi Premium won’t impact the Bitcoin market like the previous times, noting that South Korea’s volume compared to the global one has significantly reduced — from 7.9 percent in 2017 to 2 percent.

Fed Minutes

Bitcoin also dropped below $56,000 during the US session Monday as investors awaited minutes from the Federal Reserve’s meeting in March to look for clues on how central bankers view inflation and US economic recovery speed.

Some investors fear that vaccine rollout, easing coronavirus restrictions, and the latest $1.9 trillion stimulus package would pent-up consumer demand, leading to a higher inflation. In turn, it would prompt the Fed officials to hike interest rates from near-zero earlier than 2024.

“When you have all this money that has been pumped into the system and into people’s pockets, but that hasn’t been spent yet, then you know inflation is going to come at some point,” said Brian Walsh, Jr., senior financial adviser at Walsh & Nicholson Financial Group.

Higher inflation prospects make the US dollar more attractive to foreign investors. Meanwhile, the greenback’s weakness tends to benefit Bitcoin.


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South Korea: After Sending Bitcoin Price to $71k, Kimchi Premium Begins to Nosedive

The price of bitcoin (BTC) briefly touched $71,000 at 5:55 a.m. UTC on South Korea’s Upbit crypto exchange. However, things have started to cool down as the price of bitcoin (BTC) has failed to maintain its bullish push.

Bitcoin Hit $70k in Korea 

Bitcoin raced to an all-time-high (ATH) of over 61k for the first time in its 12-years history earlier this year. However, the world’s flagship crypto has found it a herculean task surpassing that price region for several weeks now, with the bitcoin price now hovering around just above $57k. 

However, the story is not the same in the South Korean cryptocurrency market, as the Kimchi premium pushed the bitcoin price above 79,422,000 won ($71,000) on the Upbit exchange in the early hours of April 7, 2021, a strong indication of where the market might be headed next in the coming days or weeks.

For the uninitiated, the kimchi premium is simply an indicator named after a traditional dish in South Korea and it shows the spread between the price of digital assets in the country and the global markets.

Kimchi Premium Crashes Hard 

Notably, the 23 percent kimchi premium on the price of bitcoin witnessed earlier today has since started nosediving in tandem with the bitcoin price on the global market. According to a tweet by a Twitter user with the handle @lawmaster, the kimchi premium crashed from 23 percent to just around nine percent.

While some observers have attributed the sudden decrease in the kimchi premium to the sharp correction in the price of bitcoin (BTC), others argue that the emergency suspension of deposits and withdrawals on the Upbit exchange is responsible for the crash.

While the kimchi premium, which has gone as high as 600 percent in the past, presents an arbitrage opportunity to smart Korean traders, the government has however been trying hard to close this goldmine to no avail.

As reported by BTCManager in September 2018, the Bank of Korea, the nation’s apex bank called on financial authorities to put in place tight surveillance that would effectively eradicate the kimchi premium.

With the price of bitcoin continuing its downward slide ($57,607), it remains to be seen whether the orange coin will still find a way to kiss $70k this season as predicted by the almighty kimchi premium.

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Kimchi premium collapses: Short-term top signal or a reset for Bitcoin?

The so-called Kimchi premium, which measures the premium of the Bitcoin (BTC) price in South Korea’s cryptocurrency exchange market, plummeted overnight.

The premium declined from 22% to 15% within a matter of hours on April 7, and it is continuing to drop across major South Korean exchanges.

BTC Korea Premium index. Source CryptoQuant

A big pullback in South Korea’s Bitcoin market

Overnight, as CryptoQuant CEO Ki Young Ju noted, the price of Bitcoin fell particularly hard on South Korean exchanges.

As the price of Bitcoin dropped, the Kimchi premium fell in tandem. But, since BTC price fell significantly harder on South Korean exchanges, the premium plunged quickly within a matter of hours.

Bitcoin falls hard on South Korean exchanges. Source: Ki Young Ju

There are two possible reasons why the premium dropped in the manner that it did.

First, traders from outside of South Korea might have found a way to successfully arbitrage the premium. One potential way this could happen is if traders from other Asian markets coordinate with whales in South Korea to sell BTC and withdraw on the same day.

Second, altcoins that were increasingly gaining momentum throughout the week severely corrected. As the capital from the altcoin market exited, traders might have also sold BTC and ETH, bringing down the large-cap cryptocurrencies.

Ki said:

“It seems someone finally figured out how to arbitrage this Kimchi premium opportunity. The trading volume in 30min time frame on @upbitglobal , the largest Korean exchange, was bigger than @Binance ‘s. This drop seems related to Kimchi pullback. One evidence of arbitrage: @BithumbOfficial , one of the largest exchanges in Korea, $BTC inflow mean has been increasing while all exchanges’ is decreasing. It seems some whales are depositing BTC to Korean exchanges.”

XRP, as an example, was consistently one of the most popular cryptocurrencies in the South Korean market throughout the past week.

As Cointelegraph reported, XRP broke out against Bitcoin, rising above $1 for the first time in over three years.

But, as altcoins like XRP fell, it is possible that the market sentiment around Bitcoin and Ethereum also worsened in the Asian market, bringing down the premium.

Is this a top signal?

When the Kimchi premium fell substantially in 2017, the price of Bitcoin plummeted by more than 50% within several days.

This time around, the price of Bitcoin dropped by 5% to $56,000 and has started to recover fairly quickly thereafter. 

The probability of the cryptocurrency market recovering in the short term remains high because there were large liquidations in the past 48 hours.

For example, a single XLM trade resulted in a liquidation worth $84 million. Given that well over $1 billion were liquidated in the last 24 hours, the crypto derivatives market is likely to reset.

BTC funding rates. Source:

The funding rate of Bitcoin across major futures exchanges was around 0.15% before the drop. This is 15-fold higher than the default 0.01%, indicating that the derivatives market was extremely overheated.

Though, as the chart above shows, the funding rates remain at relatively high levels, which suggests that the price may see more downside in the short term.